≡ Menu

Weekend reading: Most things you want to own don’t diversify your portfolio

Weekend reading: Most things you want to own don’t diversify your portfolio post image

What caught my eye this week.

People have a hard time with diversification these days, and it’s easy to see why.

  • Developed world government bond yields are still pretty tiny compared to most of the past few decades.
  • UK inflation-linked bonds are so dear they even scare my purist co-blogger The Accumulator.
  • Cash pays you less than nothing, in real terms.
  • Gold, if you like that sort of thing, has been stuck in a bear market for half a decade.

Meanwhile, global shares rally on. Why diversify and give up the gains? Yes, equities look expensive but so does everything else.

TINA, some pundits have dubbed such thinking. There Is No Alternative.

If you can stomach the volatility that will come with the inevitable big stock market crashes, then maybe TINA isn’t the worst date in town. I have been 95-100% in shares at some points over the past decade, so I’m not going to judge you. Shares should outperform other assets over the very long-term, despite the plunges.

There’s no rule that says you have to diversify, just because in theory it will mean a better risk-reward profile for your portfolio. You don’t get style points in investing.

If what you care most about is long-term returns – perhaps because you’re young, or because you’re investing spare money that isn’t underwriting next month’s rent – then going all-in on shares might be reasonable in these tricky times. (Especially if you’ve got a bit of home bias going on. UK shares look cheaper than most, in my view.)

However I would guard against pretending you have diversification that won’t hold up in reality.

Dreamy diversification

I often hear people say that instead of bonds they hold dividend shares, or value shares, or infrastructure funds, or some obscure investment trusts.

The theory, I guess, is these all pay a bit of income so therefore they are a bit like a bond.

Well, perhaps a very little bit.

In reality if markets do plummet 25% in a crash, you’ll probably get your 3% income from a dividend share, say. True. But they’ll still almost certainly take a 20%+ capital loss on the chin, too. Perhaps they’ll even do worse than the wider market, given how popular dividend shares have been since 2009.

Similarly, investment trust discounts can often widen sharply in an equity scare, even if the potentially alternative assets they own do stand up better than the market.

Correlations and consequences

The following graph from Tensile Trading shows three-year correlations for US assets. UK assets will behave much the same.

Note: The stuff that might really hold up in an equity crash is towards the bottom.

Source: StockCharts.com

Yes, it hurts to see the case for lousy old bonds. Honestly, I’m just as miffed as you are.

At this point in a typical cycle we might normally expect to move some of our share winnings into cash and government bonds paying 4-8% or so. To be fearful when others are greedy, as the Sage of Omaha says.

But we can’t get those rates, for all the post-crisis reasons we’ve all read about for the past 10 years.

I understand it’s hard to buy government bonds set to pay you less than 2% a year for the next five years. But if stock markets fall 20%, then that would be a relative return of 18% to the good, even before any potential capital rise.

Am I predicting an imminent crash? No, I don’t think anybody can do that. I do think a correction of some sort is probably drawing near, for what it’s worth. (Very little). But who knows about the timing.

I’m simply saying that if you want to diversify your portfolio, then own assets that actually diversify your portfolio.

Yes, they may be a drag. But if nothing does badly in your portfolio, it’s usually a sure sign that you weren’t really diversified, after all.

From Monevator

Revisiting The Permanent Portfolio – Monevator

From the archive-ator: Don’t waste money buying expensive gifts – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

UK banks have two million customers stuck in permanent overdraft – Guardian

Limited companies now ‘the norm’ for buy-to-let landlords [Search result]FT

Average first-time buyer deposit forecast to rise to £81,000 within 10 years – ThisIsMoney

How a second-homes boom is hollowing out one Yorkshire village – Guardian

(Click to enlarge)

Trump’s ‘forecast’ for 6% GDP growth more than twice the US 30-year average – CNBC

Products and services

National Savings brings back Growth and Income Bonds paying up to 2.2% – NS&I

UK rail passengers face biggest fare rise in five years – Guardian

Vanguard launches investments for those retiring in the 2060s – ThisIsMoney

The over-70s who mortgage their homes to pay for care – Telegraph

Ten ways to cut the cost of a private school education [Search result]FT

BlackRock and Vanguard less than a decade from managing $20 Trillion – Bloomberg

Bestinvest was voted ‘Best low-cost SIPP provider 2017’ by FT readers – Bestinvest

Vanguard readying to launch Smart Beta ETFs in the US – Seattle Times [via Mike]

Comment and opinion

We are in a bubble – Neil Woodford

Fed narratives can be dangerous for your portfolio – Pragmatic Capitalism

Financial literacy: A problem for the many, not the few – DIY Investor UK

Can index funds be a force for sustainable capitalism? – Harvard Business Review

Merryn: 2017 was year of consequences for investors [Search result]FT

UK FIRE folk are fortunate compared to other Europeans – Simple Living in Suffolk

Loadsa loadsa loadsa – SexHealthMoneyDeath

Get rich with… feminism – The Escape Artist

Seed investing into unlisted start-ups is in a slump – AVC

The case for combining different ‘return factors’ [Geeky; clear graphs]Factor Research

Most portfolios aren’t very efficient, academically speaking [Geeky]Flirting With Models

Cryptocurrency follow-up

By February 2020, bitcoin will use as much electricity as the entire world does today – Grist

Bitcoin hasn’t replaced cash, but investors don’t care – New York Times

A taxi driver who cashed out his ISAs to buy bitcoin – ThisIsMoney

Larry Swedroe: Bitcoin and its risks – ETF.com

A sober view on crypto, with Adam Ludwin [Podcast]Invest With The Best

Two sides of the same coin – The Irrelevant Investor

People more interested in bitcoin than were gold at height of the crisis – Telegraph

Bitcoin: Millennials fake gold – Contrarian Edge

A fast million from bitcoin? I don’t want to damage my soul – Guardian

Off our beat

When does work actually get done? – Pricenomics

The harsh history lessons of Brexit [Podcast about UK’s ascension in 1970s]FT

Unusual weather this year has produced giant apples – Guardian

And finally…

“Always winter but never Christmas.”
– C.S. Lewis, The Lion, the Witch, and the Wardrobe

Like these links? Subscribe to get them every Friday!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

Receive my articles for free in your inbox. Type your email and press submit:

{ 36 comments… add one }
  • 1 Mr Optimistic December 8, 2017, 8:24 pm

    Good timing as the IFA has given the ok for my pension transfer from DB ( not all my DB pensions) so I will soon have to throw a large 6 figure sum into the market. I am thinking 50% cash to be honest for the short term. Would love to have a direct IL holding but jeez, they are expensive. Agree with everything you say but thinking and acting are two different things. May be I would plug TIPS and US treasuries but haven’t found a currency hedged low cost version.

  • 2 The Rhino December 8, 2017, 8:39 pm

    My feeling is that during bull markets it is natural to think in terms of how do I make the most in terms of asset allocation and very unnatural to think in terms of how do I lose the least. This flicks like a switch in a bear market and it becomes the most natural thing in the world to think in terms of how do I lose the least and little thought is given to how to make the most. Ideally you want to think both ways all of the time?

    I have purchased vanguard LS way down in the 20% and 40% regions for the 1 st time recently..

    Still haven’t got round to buying any bitcoins 😉

  • 3 The Investor December 8, 2017, 8:39 pm

    @Mr Optimistic — Yes, it’s hard. My personal approach with my fixed income portion at the moment is to hold short to very short duration safer assets. (So short-term government and investment grade corporate bonds etc). I also own lots of other stuff, from US TIPS and foreign developed market bonds (hedged) to a small amount of high yield to some of the things other people like to own instead of pure companies/markets (e.g. REITs, I bought a small amount of infrastructure funds when they sold off recently, and also even weirder stuff).

    So I do own some of those assets, I’m not against them, and day to day they do reduce volatility a tad.

    But it’s only really the government bonds and (perhaps) gold that I expect to hold up in a proper crash. 🙂

  • 4 The Investor December 8, 2017, 8:41 pm

    p.s. I want to start shorting more, too, as another sort-of hedge. But that’s well off the purview of this blog nowadays. 🙂

  • 5 Mr Optimistic December 8, 2017, 8:50 pm

    In the upside down world of pensions, where a pessimistic assumption is to live a long time, perhaps taking up base jumping might be a rational choice, however writing call options would be a step too far.

  • 6 Dan December 8, 2017, 9:34 pm

    I agree with everything in this post and agree its necessary to diversify. I’m curious though whether anyone has an opinion on how uncorrelated p2p loans are as a form of diversification as an asset class from equities. Perhaps its yet to be proven, but any data on this would be interesting.

  • 7 Hospitaller December 8, 2017, 10:52 pm

    @Mr Optimistic

    You may want to look at the Vanguard US Government Bond Index fund (GBP-hedged).

  • 8 Egremont December 9, 2017, 12:38 am

    “Always winter but never Christmas.” Always Christmas (it starts, in the shops, the day after halloween) but never winter (thanks to global warming) is surely the 21st century version of the problem.

  • 9 Mr Optimistic December 9, 2017, 7:09 am

    @H. Ok, I’ll check that out. Thanks. Ideally I would want a hedged short duration fund/etf for US Treasuries, say 3 year duration. I noticed that Swensen’s idea of short duration was less than one year. However maybe this reflects liquidity concerns if you have to park large amounts of cash.

    Having to invest your future widow’s pension is somewhat sobering….

  • 10 UK Value Investor December 9, 2017, 8:53 am

    “Average first-time buyer deposit forecast to rise to £81,000 within 10 years” – And the deposit in London is forecast to be a mere £250k (for the 0.1% of people who can afford it). I love this sort of simple extrapolation of past price increases and it’s good to see such unbiased research on the housing market from a mortgage broker!

    “A taxi driver who cashed out his ISAs to buy bitcoin” – And from the article, “You cannot move for noise about Bitcoin. It’s plastered on social media and is being spoken about in pubs (and taxis) across the land.” Oh dear. If it doesn’t crash soon we an expect to see a lot more of this sort of thing. Hopefully not too much though, especially if people are buying into it via leveraged spread bets. Leveraged buying of volatile and overvalued assets was basically what did it for the Great Depression…

    “if nothing does badly in your portfolio, it’s usually a sure sign that you weren’t really diversified” – Excellent line. There are some investment funds out there that have been going up by about 20% per year, every year, with almost every stock in their portfolio going up, up and up, largely through valuation expansion. I can see the attraction, but when things turn south I suspect everything in their portfolio’s will turn south at the same time.

  • 11 Mr Optimistic December 9, 2017, 10:16 am

    @hospittaler. Thanks again for pointing out that fund. OCF 0.25%, effective duration less than 6 years, near enough.
    And thanks to TI for the blog.

  • 12 hosimpson December 9, 2017, 11:42 am

    The 12th reason why Bitcoin is probably in a bubble:
    These days I get as much spam email about Bitcoin as I do about Christian singles dating, payday loans, hot Russian babes and penis enlargement combined.

  • 13 FI Warrior December 9, 2017, 12:16 pm

    @ hosimpson

    I’m hodling up a 10/10 sign Sir for the perfectly executed move, truely that is a modern framing of how it really is with a contemporary bubble.

    @ TI

    Yes, it’s surprising how many investors miss the point of genuine diversification, having bonds of and shares in property companies for example and not seeing that together with their mortgage, if the property market crashes, the only way they could do it worse is if they and their partner were also estate agents.

    BTW, I’m also mystified why gold is not doing better as a hedge when it has more intrinsic value as well as historical reassurance than crypto. If someone could come up with a recession-proof asset class with practical/long-term value right now to satiate those panicking about the loss of faith in fiat money, they’d coin it. ( excuse pun 🙂 )

    Perhaps if there was a user-friendly way of buying paper representing real, long-term storeable food. People will always still have to eat, the rate of global population explosion isn’t close to having zero’d yet, while land degradation through bad farming practice is widespread and things like dried beans/rice keeps for years, so it must be a sure thing?

  • 14 tom December 9, 2017, 12:56 pm

    Shorting. I take your point about it being far from the purview of the site. But where to discuss this stuff, then? If I started a blog (having previously tried & failed), would anyone comment?

    Shorting for me has always been one of the hardest things (and as for the past 8 years…). I can think of only 2 or 3 fund managers that I believe have actually made worthwhile money from it.

    I want to learn more about long, out-of-the-money index puts, as this seems like a relatively cheap way to have overall insurance, while allowing me to keep the more small-cap investments.

    I think this is the sort of thing Gervais Williams has done on the Diverse Income Trust. But I really don’t know where to start with doing this practically e.g. which websites provide this.

  • 15 Guido Maluccio December 9, 2017, 5:40 pm

    Yes, I’m curious to find managers successfully using index put options to hedge in the UK and accessible to individual investors. This article posted by The Investor last week stoked my interest:
    “The truth is, no one knows how much longer the bull market might run. It might end tomorrow, or it might go on for years. At Swan Global Investments, we don’t have a crystal ball to tell the future nor do we pretend to. Therefore, the prudent approach is to build a portfolio comprised of diversified asset classes that attempts to provide direct protection against major market sell-offs. Swan Global Investments believes the best way to do this is to be: always invested, always hedged.”

  • 16 Hospitaller December 9, 2017, 7:25 pm

    @ Mr Optimistic My pleasure. Yes, the duration is low versus what I expected to see when I was looking for some quality government bonds to add some diversification against an equities crash. The Fed may raise rates again mid-December (12th to 13th December, I think) so maybe wait until the market has settled down after that.

  • 17 OxDoc December 10, 2017, 9:26 am

    Hi, whilst your chart shows that returns from dividend stocks are highly correlated with those of the general stock market, it doesn’t say anything about the other investments you mention like infrastructure funds or other alternative investments, nor others hit don’t like peer to peer. Is there any relevant data on these?

    Also, the three-year correlation is not clearly a relevant measure. A more relevant quantity is now much each asset has fallen in the past during stock bear markets, since I think the point of diversification for most people is to reduce losses in these circumstances. An asset can potentially be highly correlated, but if its volatility is low, then the amount it falls by may not be that much. Also, I think I’ve read that correlations tend to be higher in bear markets, so using correlations calculated over all market conditions may give an overly favourable impression of the diversification benefits that bonds provide.

  • 18 Guido Maluccio December 10, 2017, 10:29 am

    Yes, you make an important point that correlations have historically become stronger during global market crashes. Monevator has often linked to articles discussing this, including some more of the asset classes you’re interested in. I like this one (The Unknown Unknowns of Investing):

    “Every asset besides 3m T-bills and 10 year Treasury bonds became positively correlated at the same time. Our hypothetical investor in 2003 would have only had safety in their 10 year Treasury bonds while all other assets lost value in the crisis. The problem is that correlations trend to 1 during panics.”

  • 19 Owen December 10, 2017, 12:19 pm

    Small point, but actually an important one. If the market was to drop 20% in a year, you would need to achieve a 27.5% return (102/80) to match where you’d have been if you were invested in bonds instead

  • 20 The Investor December 10, 2017, 1:01 pm

    Thanks for taking the time to comment everyone. A few thoughts.

    Firstly, I didn’t really get into return expectations. Here the main point is that if returns from government bonds are expected to be lower than in the past for years stretching into the future, then equity returns can be expected to be lower too, all else equal.

    Now, all else may not be equal. For a long time I felt we were protected from this by low starting valuations — e.g. see this post from 2009 speculating about 20% a year returns for a decade — which was why I pushed back against the general doom and gloom a few years ago when, for example, the official expectations used for pension calculations were lowered.

    However I no longer think shares are cheap, especially outside of the UK. I might be wrong, who knows, but to me the valuation gap over bonds seems to have mostly closed.

    Bottom line, if you used to expect government bonds to deliver say 6-7% as a nominal return and shares maybe 7-9% and you now think government are only going to deliver maybe 1-2% nominal (and nothing in real terms) for the foreseeable future, then equity return expectations need to come down too, to perhaps 3-5% nominal, or 1-3% real, off the top of my head. And of course still be vulnerable to a crash! That’s not a reason not to hold equities, of course, and very possibly even a lot more than you might have held at the same point in a typical cycle when cash/bonds offered a decent rival real return. We can also speculate that central bank action has distorted the price of bonds (downwards) and thus it doesn’t imply as much of a dampened return for shares as would otherwise be the case. Agreed, food for thought. But it is to say that there’s probably little to no free lunch (let alone an all-you-can-eat buffet!) from foregoing government bonds to load up on shares, and you will lose bonds’ diversification benefit to the extent you do so, IMHO.

    On peer-to-peer investing and correlation: Not aware of any correlation data; as we all know it’s still a new asset class. Personally I would think the closest analogy to self-invested peer-to-peer as an asset class is probably high-yield/junk bonds, but with different characteristics that I can speculate on but have zero expertise in evaluating (e.g. lending to consumers versus companies, P2P loans not marked to market, instead they are either good or in default so a different failure profile, etc). As a guess, I’d expect them to diversify well in a mild recession/corrections but perhaps less well in a steep recession (i.e. that caused a lot of defaults.) Zopa did well through the financial crisis, although it did have one shocker of c. a quarter where it made unusually bad loans, as shown by higher default rates. (Which spooked me at the time, as suggested here as it unfolded and proven by later data. I was accused elsewhere at the time of not understanding probability by Zopa zealots. 🙂 ) This points to the big risk for me of P2P, which is some sort of systemic failure in any particular platform’s models / assumptions / underwriting. I like the asset class (at the right rates) but I’d never put more than 1-2% into any single (very big and mainstream) platform for that reason and maybe 10% tops overall (I’ve never got to even 5% though, currently much lower due to trying to buy a property). P2P investment trusts (listed funds of portfolios of P2P loans) I think would be even more closely correlated to equities, because discounts will probably blow out if/as they start to disappoint. Still that doesn’t make them a bad buy at the right price for adventurous active investors, perhaps. (Everything has a price! 🙂 )

    On infrastructure funds: Again, agreed they’re missing from the data, but as others have said we have no data as they’re very new. 🙂 (Short run you can see just by looking at a graph that they’re lower beta / and somewhat uncorrelated. But likely different in a downturn, if only because discounts will almost certainly widen.) I’m not at all against these trusts in principle (I now own small holdings in a few), rather when others have put them forward here as an alternative to government bonds for passive investors my complaint has been (a) they are not government bonds, and no reason to think they will behave like them and (b) the big premiums to NAV, which as far as I can see are/were mostly there because of yield chasing. As we’ve seen recently infrastructure has different kinds of risks (political risk, probably some sort of counter-cyclical risk around government spending, management risk, etc) which is fine provided you know what you’re buying and you are valuing accordingly. (i.e. Not: “Wayhey! A 6% risk-free dividend yield forever fill yer boots!” 😉 ) Anything that trades one kind of risk for another can reduce overall risk in a portfolio (which is why I have now bought a few in their recent wobble, potentially as a short-term trade) albeit potentially at the cost of return (hard to speculate here as we have no long run data).

    On high yield shares: Again, not against these on any principled grounds, some of my favourite active investors have been dividend focused investors etc, as have I in the distant past. However they are not going to diversify you from equities in a crash, I am pretty sure of that. More broadly, value shares can do very badly in a downturn, incidentally, depending on how you define “value”. (E.g. If the companies are struggling and under a lot of debt, a recession does them no favours. You might then rather own a growth stock like Alphabet or Amazon.) But each cycle will be different… e.g. Value has been out of fashion versus growth, so it is starting from somewhere cheap. So if the market correction was more market/valuation related (e.g. 1987 or arguably 1999) versus economic (1970s) or financial crisis-y (2007) then perhaps value would this time outperform? Past performance is no guarantee and all that.

    On three years being a short time re: correlations: Agreed. But you have to use something. Use very long-term correlations and the short-run gets swamped and people (rightly, and we’ve written about this on Monevator 🙂 ) say “Yes, but in the short-run or a crash correlations will rise” etc. There isn’t (in my humble opinion) a perfect answer here. Either you make your judgements and take active risk or you stick to tried and tested simple passive portfolios (which I think most people should do) of very broad brush building blocks. (e.g. Global shares, UK government bonds, cash, gold, maybe some broad REITs.)

    On gold: I think it’s very possible the ascent of bitcoin is sucking marginal buyers away from gold. As someone who owns some gold, this is a bit frustrating! 🙂

    On shorting: I have barely done this since before the financial crisis, nor felt much need to. I’ve only ever done it via spreadbetting, which comes with its own problems (e.g. liquidity issues when trying to short fraudulent small caps) and I am far from an expert. I have (in my own mind, in my active adventures) a reasonable record of identifying very poor / iffy companies, of the sort that can be / have been exposed when the tide goes out. I wouldn’t expect to make any money on any shorting in a bull market, with my extremely limited skill set/track record. It’d be more about ‘paying’ 1-2% a year in return, probably, for hopefully more than that in a crash. It’d be a marginal activity. To some extent it’d be for fun/interest.

    As for writing about shorting on Monevator, it’s got hard to even write about active investing here these days, as much discussed and debated over recent years, and for understandable reasons. Shorting for now is I feel just a bridge too far.

    Writing about it also brings vast amounts of grief, since many companies you’d short have rabid followers that will shout you down, accuse you of manipulation, make legal threats etc. It’s not worth it, basically.

    Finally, shorting is much harder that going long stocks, if only because markets tend to go up and your losses are potentially infinite (but much else besides). I have quite a bit of evidence now that I am a successful active investor, by my own definitions. (i.e. I have beaten the market over short and long term with lower volatility, but I don’t doubt some quant might say/find I could have done it all by buying 2-3 factor ETFs and going windsurfing instead.) I have no such firm belief/evidence re: shorting, which is yet another reason not to write about it any detail. 🙂

    Sorry I can’t be more helpful with this.

  • 21 The Rhino December 10, 2017, 1:10 pm

    Ah windsurfing. Blowing 40kts down here today. If only..

  • 22 Simon December 10, 2017, 3:02 pm

    Your point on equities returns having eventually to adjust to lower expected government bond returns seems solid. As another angle on that, I feel fairly sure that, while many things may cause an equities correction, one thing that seems almost bound to have that result is when US government bond yields go to say 3% (and they seem to be going reasonably steadily that way). At that stage, I would expect the “nowhere else to put it” force behind equities valuations to begin to fade away. Then things will get interesting.

  • 23 Mathmo December 10, 2017, 8:35 pm

    Outstanding chart, TI — brilliant find. I wonder if it’s more generally true over more periods, but that’s just a fabulous illustration. Thank-you.

    I got a lot more relaxed about a generous slug of bond/bond-a-likes in my portfolio when I realised that bonds are a place to leave wealth while you wait for assets to get cheap. ie they are a way to increase future equity returns (by triggering you to buy them when they are cheap). Transformed my thinking from trying ride the 95% rail to relaxing into the 60/40 world (as if, not quite). I mean if it’s a good thing to have, you shouldn’t just have 5% of it, right? 😉

  • 24 phil1edinburgh December 10, 2017, 11:44 pm

    But if interest rates rise say 1 or 2 % points then bond prices will drop 12 plus % – so quite high risk eh? and as inflation in UK is 2.9 % and bonds yield 1-2% you lose money every year.

  • 25 mousecatcher007 December 11, 2017, 12:19 am

    @ Mr Optimistic

    They’re not exactly what you’re looking for, but have a gander at UBS Barclays US Liquid Corporates 1-5 ETF (LSE:UC82), or UBS ETF Barclays TIPS 1-10 ETF (LSE:UBPT). They’re both hedged to GBP.

  • 26 Mr Optimistic December 11, 2017, 2:50 am

    Ok, thanks for your help. Currently dealing with Fidelity for a defined benefit pension transfer. It’s awful.

  • 27 Lad's Dad December 11, 2017, 2:42 pm

    The BestInvest SIPP link seems to be broken. Thanks for the reminder to help set one up for the Wife tho!

    Thanks for another year of priceless financial insight and investing comradery!

  • 28 Steve December 11, 2017, 7:04 pm

    @Mr Optimistic I suspect it is the generic process rather than Fidelity (whom I have found to be consistently helpful and sound).

    On diversification, (1) I like it and it is free (of direct cost) (2) I view it perhaps somewhat differently from the above ie not as an exercise in seeking to offset equities losses with things which may increase in value if equities tank but rather as a way of containing overall portfolio losses to a level acceptable to me. Under that thinking, while I do have some government bonds and gold, I mainly rely on quality corporate debt to achieve that effect – eg if that sinks by 10% while equities sink 20%, that’s okay for me. As a separate issue, while I do not dispute the historic data, I have an inkling that US and UK government debt might not prove as unimpeachably high quality as in the past. I sense that Western politics is moving more towards doing whatever the masses demand (includes me), be it right or wrong, and away from their historic sense of prudence. I have a suspicion that over the next 10 years we may even find quality corporate debt more highly appreciated than these government debts.

  • 29 pulpo December 11, 2017, 8:43 pm

    @ Mr Optimistic – ishares Global Aggregate Bond (AGBP) hedged at 0.1% p.a
    This looks new and may be an alternative to VGD’s Global Bond Index Fund as a one stop shop. Useful too for those of us at HL where funds are prohibitively expensive to hold but where etf’s cost nothing. No performance date yet as it only looks a fortnight old.

  • 30 The Rhino December 12, 2017, 11:35 am

    @Steve – exactly the thought process I was alluding to in comment #2. The ‘how do i lose the least’ approach rather than ‘how do I make the most’. I think there is a general myopia amongst investors only allowing them to consider one at a time depending on prevailing market conditions, which is potentially detrimental to their performance.

  • 31 Brod December 12, 2017, 2:57 pm

    Well, I keep reading articles like this and while I agree, and think I would take the Bond equity-immunisation medicine, I’m not sure I need to as I’ve taken a Civil Service job with the No.1 motivation being the index linked pension. I value this at market annuity rates which I reckon is about 3% with inflation protection and partner benefits. This means after just 3.5 years it’s approximately 30% of my portfolio. Crazy, huh? (Conversely, I’m paid about 25% less then I would get on the open market and my death in service benefits are less than when I was at L&G. So if I put that 25% in my SIPP, I reckon it evens out.)

    My SIPP portfolio is 100% equities and I won’t need it for 15 years. Completely globally diversified. Should I just let it ride? I did in the dotcom and 2008, I wonder if I would be able to see out the inevitable correction? Maybe take 10% off the equity table as I’m about 15% ahead of schedule?

    In 3 /4 years when with the state and CS pension hit about £15k p.a., I hope to partially retire and go part-time for a few years. My wife will pick up the slack until my state/CC pensions kick-in in 15 years.

    What do people think?

  • 32 John B December 12, 2017, 9:09 pm

    @Brod is your CS pension payable at 60, as mine (10 years 93-03) is? If so I’m not sure you need bonds. If you are ahead of the game in equities, you can afford to be more relaxed about any falls, as they are mostly coming out of overshoot anyway. Wealth preservation is most important if you have only just enough, if you have more than you need, leave it in equities.

  • 33 Mr Optimistic December 12, 2017, 9:37 pm

    @pulpo thanks but SIPP platforms slow to catch up.

    @steve, perhaps but it’s the Fidelity IFA I don’t care for. Advised the Fidelity Multi Asset Growth & Income Fund which has shocking expenses ( try north of 2.5%). Poor clients handing over one fortieth of their wealth every year. He is also forcing me, through lack of time, on to the Fidelity SIPP. Expensive and restrictive (6 ETF suppliers). Still, may not yet happen but it will cost me £2500 either way.

  • 34 Steve December 13, 2017, 1:49 pm

    @ Mr Optimistic I am sorry you are having a rough time. I don’t want to sound like a know-it-all but while I can see a potential case for using an IFA to draw out the issues in transferring a defined Benefit arrangement into a SIPP, I do not really see what he is doing being involved in your investment decisions (once you have decided to move a lump sum into a SIPP). You seem to know stuff already from your above comments (I also hold the £-hedged Vanguard US Government bond fund) and a day’s reading of articles on this site can give a good view of what you might do once you have defined your future needs. In other words, DIY investing is reasonably simple and perhaps he should be out of your life in that regard. Anyway, good luck.

  • 35 Mr Optimistic December 14, 2017, 8:07 am

    Thanks! We have the builders in at home, and I have man flu, and it’s nearly Christmas. Where is the good news ? Issue I have is lack of trust with the financial industry. Have I read ALL the small print? The Fidelity t&c’s say that if they offer drawdown advice then they will use their multi asset funds. I just want advice on the transfer, not drawdown, so what have I signed up to? Almost past caring and if it doesn’t happen then loss is just £2000 fee. Paranoia has its price!

    Suspect Fidelity is concentrating on corporate clients, ie pension scheme members not individual retail customers. Shepherd the DC clients into their SIPP with minimum of fuss and alarm. But to put them into those multitasset funds, sheesh.

  • 36 Steve December 15, 2017, 3:10 pm

    @ Mr Optimistic Word to the wise. As regards how you invest I imagine you want your account to be non-advised and should tell Fidelity that. The reason I say this is that, when I was just out of shorts, I once unthinkingly bought a fund via an adviser and about 10 years later wondered why it was sitting in a separate account. To my shock, I found fees had been paid to this adviser for all those years. I told them to close that account and reinvest in a non-advised account – and that was him over and done.

Leave a Comment